Mortgage Finance

Improving the way housing was financed was an important part of the Great Depression-Era reforms of the 1930’s.  At the time of their creation, the Federal Housing Administration (FHA), the Federal Home Loan Banks and Fannie Mae were intended to help promote secure and sustainable home ownership.

For nearly eighty years these institutions provided access to credit and brought standardization and transparency to the housing finance market.  However, during the economic crisis of the powerful 2007-2009 recession (December 2007 through June 2009 according to the National Bureau of Economic Research), these institutions, having come loose from their regulatory moorings, ultimately contributed greatly to the collapse of credit and the massive volume of home mortgage foreclosures.

When the Federal government placed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) into conservatorship – basically bankruptcy protection – the foundation was set for a significant reframing of mortgage financing in the United States.  In the near-term, it also meant that the Federal government actually manages the day to day operations of Fannie and Freddie until they can return to solvency.

The move to conservatorship by the Department of the Treasury and the Federal Housing Finance Agency in September of 2008 was, according to then-Treasury Secretary Henry Paulson, an effort to shore up the nation’s housing market, protect the trillions of dollars in mortgage loans that are backed by the two government sponsored enterprises (GSEs) and preserve access to credit in the private markets for homes, cars, consumer credit and business finance.

Resources

At the behest of The Congress, President Obama’s Treasury Secretary, Timothy Geithner, released a proposal on February 15, 2011 outlining a set of reforms affecting Fannie Mae and Freddie Mac and the future of the mortgage finance market generally.

The plan emphasizes that home ownership is but one option of housing choice for families, supports access to credit and anticipates a continued Federal role to help low-income citizens burdened by high housing costs. With respect to credit, the plan anticipates that private markets will be the primary source of mortgage credit and that such credit will be subject to more stringent underwriting criteria making it both more expensive and less available to those with poor credit histories.  Both Fannie Mae and Freddie Mac are anticipated to be “wound down” on a responsible timeline.